Tuesday, 18 November 2014

How will the campaign against ISIS affect the Jordanian Economy?

Iraq is Jordan's largest export market, but since the sudden loss of swathes of territories from north and west Iraq to the terrorist organization ISIS, the land export route that goes through the Anbar province was all but shut to any traffic.

Before the sudden expansion of ISIS in Iraq and the resulting deteriorated security condition, 70% of the exports originating from Jordanian Free Zones went to the Iraqi market. The factories in those Zones were making JD600 million a year, and were achieving double digit growth, driven mostly by Iraqi investors who prefer to operate from the safe Jordanian grounds. Jordan was also importing 12,000 bpd of crude oil from Iraq by the beginning of 2014. And Jordan and Iraq have agreed to construct a double oil and gas pipeline from Basra to the Jordanian port in Aqaba for export worth $18billion, carrying 2.25 million bpd, 150,000 bpd of which for local Jordanian consumption. Jordan and Iraq also agreed to construct a 420km rail link connecting Baghdad to Aqaba.

But in 2014 the trade and cooperation situation between the two countries deteriorated significantly because of the security situation in the Anbar province which connects Iraq to Jordan. In January 2014, the imports of Iraqi oil was halted due to the militants taking over Falluja. By June, ISIS overtook major Iraqi cities and the Anbar province, Jordanian exports to Iraq diminished, because the trucks had to go through Saudi Arabia, increasing the shipping costs 4-fold. And the future of the pipleline and the rail link were unknown.

The bleak security situation in Iraq was threatening to have serious effects on the Jordanian economy. However, the unparalleled notoriety that ISIS (a.k.a. Islam State or ISIL) resulted in an international military campaign against them in both Syria and Iraq that started August 2014, this campaign was focused on degrading ISIS ability to capture new territory. This campaign is expected to last years, however, the security situation might see improvement much earlier. In Iraq, ISIS already started losing territory to the Iraqi Army and the Kurdish Peshmerga, with the latest recapture of the city of Beiji by the Iraqi Army and the largest oil refinery in Iraq in November 2014. ISIS ability to launch attacks and hold territory degraded significantly because they would be easy targets to airstrikes.

In the coming months, the security situation on the export/import routes via Anbar province might start improving, even if it will take longer for the Iraqi Army to recapture these territories, ISIS will be struggling to hold territory and will avoid to work attack obvious shipping routes because it will present itself as an easy target to the coalition aerial attacks. The Jordanian-Iraqi pipeline is progressing; in September 2014, Iraq had shortlisted 12 companies for the construction of the pipeline, and construction can start in the Jordanian territories or the safer Iraqi territories in the south. However, the pipeline and the rail link would be a potential target for terrorist attacks upon completion in 2018.

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